Sunday, 27 December 2015

Concernsover
borrowing to finance the over N2.22 trillion budget deficit and worries on
achieving the non-oil revenue target of N1.45 trillion are some of the thoughts
that dominated reactions to the budget proposal of President Muhammadu Buhari last Tuesday when he presented the
document to the joint session of the National Assembly in Abuja. These issues
are coming in the midst of calls by Nigerians for him to access the capital
market for government to meet most of its funding needs.

The Buhari administration says it plans to
finance the N2.22 trillion budget deficit by a combination of domestic and
foreign borrowing totaling N1.84 trillion as well as the provision of N1.36
trillion for debt service. But Mr. Taiwo
Oyedele, Partner/Head of Tax & Regulatory Services at PriceWaterhouseCoopers (PwC),
considered this too high. He also wondered why the Federal Government should
allocate that chunk, the size of the non-oil revenue, to debt servicing only.

He said: “Effectively,
we are still borrowing to fund non-capital expenditure. But it can only be
possible with increase in the level of sustainable tax revenue.”

As the tax revenues, expected to contribute
N1.45 trillion, Mr. Chukwuemeka Eze,
a tax expert, saw it as a tall order. He reasoned that the major focus of the
government for achieving the tax target is too narrow as they are coming
strictly from Companies Income Tax (CIT), Value Added Tax (VAT), Withholding
Tax (WHT), import duties, export duties and excise duties. Mr. Eze, however,
cautioned on placing too much tax burden on the few operating companies in the
country, with a view to meeting the budget target, since the population of
active companies in the country is dwindling.

In his own words: “The
budget estimate of non-oil revenue is theoretically realisable. The sum of
N1.45 trillion is quite huge considering that the targets are companies’ income
tax, value added tax, withholding tax, import duties, export duties and excise
duties. The population of companies in Nigeria that are actively engaged in
business is growing less. It will be an error to regard all the companies
registered at the Corporate Affairs Commission (CAC) as existing. In fact, many
of them are portfolio companies with doubtful registered addresses.

“We may end up placing excessive
tax burden on the few operating companies in order to meet the budget target.
This is really a big burden on Tunde Fowler, the FIRS Chairman. As for the
Customs duties, the amount realisable will be dependent on sanitisation of port
operations in Nigeria. With a reduction in corruption at the ports and a maritime-friendly
environment, the Nigeria Customs Service (NCS), under Col. (rtd.) Hameed Ali,
may deliver on his mandate. Notwithstanding, my optimism is cautious as only
time will tell.”

Like Eze, Mr. Taiwo Oyedele still believes
that the tax target is not only possible, it is even inadequate, saying, “the non-oil revenue target of N1.45 trillion is not
ambitious enough in my view, given the low level of tax compliance and
significant scope to generate more revenue especially from VAT. There should be
focus on blocking loopholes in the tax system and curbing abuse of incentives.”

As regards the amount allocated to capital
projects, a capital market analyst, Mr.
Sola Oni, advised the Buhari administration to raise long term fund through
the capital market. He opined that mobilisation of funds through the capital
market for capital projects has multiplier effects just as he describes
government bonds as gilt edge whose risk profile is almost zero. He added that
the capital market option should be exploited as a veritable strategy to
finance the budget, rather than resorting to external borrowing.

Apart from the fact that going cap in hand to
the offshore creditors, rather than the Nigerian capital market, may pump up
the volume of the nation’s foreign debt put at $64 billion recently by the Debt
Management Office (DMO), it may rob the bourse of reviving its dream of
attaining $1 trillion market capitalisation.

Giving reason for suspending the plan last
year, the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, blamed the bearish
sentiments in the capital market, as foreign investors withdrew due to currency
risk.

In his own words: “Foreign
investors steadily withdrew from the Nigerian market due to currency risk, the
recovery of developed economies and the effects of the US Federal Reserve
tapering of its quantitative easing (QE) policy. Several macroeconomic
developments also contributed to the decline in market performance. These were
fall in crude oil prices and related pressure on the naira; the impact of CBN’s
monetary policy changes introduced at various points throughout the year;
Nigeria’s declining foreign reserves; festering insurgency in the nation and
weak corporate earnings. The air of uncertainty that hovered over the Nigerian
capital market throughout 2014 caused investors to increasingly adopt a ‘flight
to quality’ strategy.”

However, this notwithstanding, Mr. Onyema
promised that the Exchange would focus on increasing local investors’ participation
through strategic campaign, adding that the NSE would equally support reforms
in the power, oil and gas sectors, support the diversification of government
revenue from oil as well as implementing the 10- year capital market master
plan.

Diversification of government revenue from
oil is the main reason behind Oni’s advice that the Federal Government fund the
budget through the capital market.

He said: “Mobilisation
of fund through the capital market for capital projects has multiplier effects
of cheap long term fund for the government and deepening of our capital market
for global competitiveness. There is no doubt that government bonds are gilt
edge whose risk profile is almost zero. The good thing is that our capital
market, which now include Over-the-Counter platforms of NASD Plc and FMDQ Plc
have capacity to enable the government raise any amount of money. I think the
capital market option should be exploited as a veritable strategy to finance
the budget and the market is ready.

“The N 6.3 trillion 2016 fiscal
budget is apparently proposed to revive the soul of Nigeria’s crumbling
economy. The key issue is, ‘how do we finance the budget so that it does not
end up as a mere political gimmick?’ I believe that one fundamental approach is
how the Federal Government can leverage on the robust platform provided by the
capital market in Nigeria to bridge infrastructural gaps. If we are moving away
from over-dependent on income from crude oil whose budgetary base price of $38
per barrel has slumped to $36 even before the approval by the National
Assembly, it stands to reason that there are many rivers to cross in order to
realise the potential benefits embedded in the budget.” (Sun)

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